Sam Adams Creator Becomes Billionaire as Craft Beer Rises

Through a combination of in-person proselytizing and folksy TV ads, Boston Beer Co. Founder C. James "Jim" Koch created widespread awareness in the 1980s and 1990s that there was more to beer than what the major U.S. brewers and European imports were offering. Photographer: Kelvin Ma/Bloomberg

Sept. 9 (Bloomberg) -- Armed with a family recipe and a
flair for marketing, C. James “Jim” Koch popularized craft
beer in the U.S. and turned Boston Beer Co. into the third-largest American-owned brewery. It also made him a billionaire,
as sales of his flagship Samuel Adams brand helped Boston Beer
shares double in the past year and reach a record high Friday.

Craft beer such as Sam Adams has been a bright spot in an
otherwise stale U.S. beer market. Total American beer sales fell
2 percent in the first half of 2013, according to data compiled
by Bloomberg, while the craft brew segment grew 15 percent.
Boston Beer’s sales increased more than 17 percent during the
period.

“What he has done is amazing,” said David Geary,
president of D.L. Geary Brewing, a craft brewer in Portland,
Maine, he co-founded in 1983. “He’s very focused, a brilliant
marketer and he sort of taught us all how to sell beer.”

Through a combination of in-person proselytizing and folksy
TV ads, Koch created widespread awareness in the 1980s and 1990s
that there was more to beer than what the major U.S. brewers and
European imports were offering.

Consumers have flocked to Boston Beer’s 70-plus offerings,
including its most popular seller, Boston Lager, to small batch
specialty brews, such as Norse Legend, a Finnish-style sahti
that Vikings drank. The demand has sent Boston Beer shares up
ten-fold since mid-2009, propelling Koch’s net worth above $1
billion, according to the Bloomberg Billionaires Index. He has
never appeared on an international wealth ranking.

Niche Market

“Having watched my stock price go up and down and up, it
seems almost whimsical,” Koch, 64, said in a telephone
interview. “I remind people getting rich is life’s great booby
prize. Any normal person would much rather be happy than rich.”

Selling craft beer has made Koch both. This week, Koch will
travel to Los Angeles and Maine, where he will go bar-to-bar
trying to persuade beverage managers to carry Sam Adams,
something he has done since he started brewing beer in his
Newton, Massachusetts, kitchen in 1984.

“Because this was something started out of passion, I’ve
been able to sustain 30 years of growing the business with all
the ups and downs,” Koch said.

‘Better Product’

Craft beer continues to require such hands-on sales calls.
The segment occupies a niche in the $54 billion U.S. beer
market, with about 6.5 percent market share, according to data
compiled by Bloomberg. Together, Belgium-based Anheuser-Busch
InBev NV, which sells more than 200 brands including Budweiser
and Beck’s, and MillerCoors LLC, a 70-brand joint venture of
London-based SABMiller Plc and Denver-based Molson Coors Brewing
Co., control about 80 percent of the U.S. beer market.

Boston Beer has 1.3 percent of the U.S. market, just behind
DG Yuengling & Son Inc., the second-largest U.S.-owned brewing
company with 1.5 percent share. Its owner -- and Koch’s friend -
- Richard L. “Dick” Yuengling, has a fortune valued at more
than $2.7 billion, according to the Bloomberg index.

“The Street generally likes underdogs like Boston Beer and
the way that they are growing share by producing a better
product,” said Kenneth Shea, a beverage industry analyst with
Bloomberg Industries in Princeton, New Jersey. “The mass-produced, industrial brands tend to be bland and
undifferentiated.”

To avoid tasting too similarly to his larger competitors,
Koch samples every batch of beer the company produces and leads
purchasing trips to Germany each year to buy hops, according to
the company.

Sixth Generation

Koch is the sixth-generation oldest son in a row to be a
brewer. Born in 1949, Koch grew up in Cincinnati, where his
father was a brewmaster. The domestic beer business had been
decimated by Prohibition, a period from 1920 to 1933 when the
U.S. outlawed the production and sale of alcoholic beverages.
Grain rationing in World War II then steered public tastes away
from richer-flavored small batch beers to lighter-styled brands
such as Budweiser and Coors.

The emergence of national television advertising and ease
of transport allowed the major beer makers to dominate the
market. Seeing no chance to be a brewmaster, Koch decided to
pursue a different career.

After attending Harvard University for undergraduate and
graduate school, Koch went to work for Boston Consulting Group
in 1979, advising pulp and steel mills on manufacturing
processes. When he decided he wanted to pursue his passion for
beer, there were about a dozen craft brewers in the country,
Koch said.

$60,000 Salary

“Everyone thought I was crazy, like I was leaving
consulting to go make mud pies,” he said. His original business
plan was to be selling $1 million worth of beer in five years,
have eight employees and pay himself a salary of $60,000.

When his father realized Koch was serious about starting a
brewery, they went into the attic and dug out the recipe
developed in the 1860s by his great-great grandfather Louis
Koch. That became the basis for Boston Lager. Within a year, his
marketing scored two boosts: taking the brand name from Samuel
Adams, a Revolutionary War Patriot he found had a brewing
connection, and getting the beer named the country’s best at a
national brewing festival.

By 1990, Koch had exceeded his business plan multiple
times, selling $21.2 million in beer that year. Four years
later, revenue topped $128 million.

Rankling Microbrewers

To keep up with demand and avoid heavy capital investment
in facilities, Koch began leasing excess capacity at large
brewers in New York, Oregon and Pennsylvania. That rankled other
microbrewers who had made large investments in equipment and
felt mass production and marketing of beer was contrary to the
ideals of the craft movement, according to Tom Acitelli, author
of the book “The Audacity of Hops: The History of America’s
Craft Beer Revolution.”

“He taught consumers what to expect in an American craft
beer,” said Acitelli in a phone interview from his Cambridge,
Massachusetts office. “It’s easy to look back now and assume it
all would have worked out -- that good taste would have
triumphed -- but it wasn’t inevitable and Jim Koch helped that
along, big time.”

In 1995, Boston Beer sold shares in an initial public
offering at $20 a share. Some Sam Adams drinkers found offers in
six packs that allowed them to buy their stock for $15 a share.
Its shares traded as high as $227.10 today in New York.

Today, the company sells more than 2.7 million barrels of
beer, cider and malt beverage under the Sam Adams, Angry Orchard
and Twisted Tea labels. Koch sees plenty of room for growth,
noting that if craft beer continued to capture one percentage
point market share each year, the sector won’t catch up to
imports until 2020.

‘Rich, Happy’

The success also has inspired numerous other craft brewers
into the business. There are 2,538 breweries in the country,
more than at any time since at least 1887, according to the
Brewers Association.

Koch, who mentors small businesses through a corporate
philanthropic institute, said he offers one piece of advice to
every entrepreneur.

“When you think about starting a business, the chances
that it is going to make you rich are very small,” he said.
“The chances that it will make you happy are pretty good. So
when you go start a business, pick one that is going to make you
happy.”

The Bloomberg Billionaires Index takes measure of the
world’s wealthiest people based on market and economic changes
and Bloomberg News reporting. Each net worth figure is updated
every business day at 5:30 p.m. in New York and listed in U.S.
dollars.

(The reporter of this story is a member of Essex Base Ball
Organization, a non-profit vintage baseball league that Boston
Beer sponsors.)